Prison Inmates Claim the Tax Credit

The First Time Home Buyer tax credit has been the target of many debates over the last year. Originally crafted by the Bush administration and then expanded by the Obama administration, is in the process of being extended yet again to allow more potential homebuyers to take advantage of it. If passed, the new deadline could be moved to September 30 of this year. The goal of the credit was to boost the nation's ailing housing markets and help stabilize the economy.

Has it been effective? It depends on who you talk to. The National Association of Realtors credits a million new home sales directly to the tax credit. However not everything has been coming up roses. A big complaint among consumers is the wait to receive the credit. Initially home buyers were told to expect the credit with 12 weeks of filing an amendment, but some have reported waiting five months or even longer. The long delays have not endeared the IRS to taxpayers waiting on their refunds. The internet is awash is speculation about the reasons for the delays and how they can speed up the process.

Some recent events have shed some light on the causes for the delays in receiving the tax credit.

The tax credit generated a flood of amended returns for both the 2008 and 2009 tax season. With fraud on the rise, more returns were being audited and the results were appalling. Now, an investigation has been launched by the Treasury Department Inspector General for the tax administration, J. Russell George. The report generated by the investigation focused on taxpayers who claimed both the 2008 and 2009 First Time Home Buyer tax credit.

The report showed more than 14,100 taxpayers wrongly received at $26.7 million in tax credits. The fact that some taxpayers decided to try to fraudulently claim the credit isn't the most shocking thing; it’s who was able to get the credit.

Roughly 1,300 prison inmates received over $9 million in tax credits for homebuyers at the time they were incarcerated when they claimed they bought a home according to a government investigator. 4,608 state and federal inmates filed for the credits. 241 of the inmates who received the credit were serving life sentences.

How were so many prisoners able to falsely claim the credit? Part of the blame does fall on the IRS because they don't keep current records of who is in prison, according the IG report. Another reason is that prisons are not required to provide the IRS with information about inmates, although many do voluntarily. IRS spokesman Frank Keith defended their recent track record, stating "When the IRS has reliable data, we do a very effective job of using it to ensure compliance. When the IRS does not have reliable data, it is a much more difficult process for us."

The IRS also claims to have blocked almost 400,000 questionable claims and opened over 150 criminal investigations. In its statement, the IRS claims that "These aggressive efforts have saved taxpayers more than $1 billion."

Keith also stated that the IRS has asked Congress to enact legislation to ensure the agency gets up-to-date inmate information. In the interim, the IRS plans to reach out to prison officials to start a task force to improve inmate information sharing.

However it isn't just inmates cashing in on the tax credit falsely. The IG report estimates that 2,555 taxpayers wrongly received over $17 million in tax credits for homes that were bought prior to the tax credit being enacted. Another estimated 10,282 taxpayers received credits for properties that were also used by someone else to claim the credit. 206 taxpayers filed for the credit on multiple addresses. And to add insult to injury, investigators also found 87 IRS employees who may have improperly claimed the credit, although the review is still ongoing.

It’s no wonder that the average taxpayer is waiting over 16 weeks to get tax credit. Obviously, there was an error in estimating the effectiveness of the tax credit and the unfortunate side effects.

Mr. George had this to say in a statement. "This is very troubling. Congress created and modified the homebuyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers." Of course the IRS is taking action to reclaim the cash. According to IRS figures, over 2.6 million taxpayers claimed the tax credit through the April deadline. All things considered, the amount of fraud uncovered so far has been minimal, but its just more fuel for the fire. Taxpayers are tired of hearing about delays or requests for the same paperwork they have already submitted.

Assistant Treasury Secretary Michael Mundaca stated that, despite its problems, the homebuyer tax credit helped to spur more than 2.5 million new home purchases and helped to stabilize the housing market.

If you are one of the thousands of taxpayers still waiting for your refund, there are a couple of things you can do. First, you can contact a tax advocate. They will help you make sure you have submitted the correct paperwork and that the IRS has received it. Second, you can contact the IRS directly to check on the status of your refund. Quite often the IRS representative will give you a rough time frame in which you can expect your credit. The IRS will also pay you interest on your credit as well.

Given the rather large pool of taxpayers claiming credit the amount of fraud uncovered so far has been minimal. However as a result, the processing time of returns is now longer than ever.

So as a home buyer, would say that the First Time Home Buyer tax credit was a primary factor in your decision to buy a home? Please feel free to answer in comments.

Well, I have been doing a lot of research lately on the IRS because my husband and I completed an amended tax return to claim the First Time Home Buyers Credit. We are hard working American citizens, we work day in and day out and pay our taxes. We amended the tax return in May of 2009. We did not hear anything from the IRS until September of 2009. They asked for the settlement statement at the time of closing on the house; they asked for NOTHING else. I sent the document they requested. We did not hear anything from the IRS again until December of 2009. The letter we received advised that the IRS was not able to allow the claim because we had not provided enough proof that we lived at the residence in question. ( Now I see that is due the fraudsters in our country). I was extremely upset at this point, because at no point did the IRS even try to contact us to advise the law had changed in November. I called the IRS and spoke with a woman who said "Well, it is all over the news." That is just unacceptable. It is the IRS's responsibility to inform taxpayers of any documents needed, not news organizations!!! I DONT WATCH THE NEWS!! This young lady frustrated me so terribly, I called right back and spoke with a man who was much more understanding and stated he would reopen our file and that would give me the time to submit the necessary documents. I asked him what was needed (again, I'm just learning about the new law). He said to send a copy of a mortgage bill, a utility bill, or any kind of bill giving proof to our using the home. I did that, and in January I received a letter stating the documents were being processed and I should hear something back by February. February came and went. I didn't rush it, and I was being patient at that point. I was aware that there were delays and I was told that there was a overload of claims being processed. So I waited and waited, and by July, I still had not heard anything, so I called the IRS. I spoke with a very nice woman who advised everything was still being processed and to give it another 4 weeks. At this point it had been over a year since we made the amendment. I remained patient, and waited and waited. Then this past week, on October 18, I spoke with another lady for an update. She said the file was closed in December. Okay? I knew that, but what about the guy that reopened the file, and what about the letter I got in January? This lady didn't know anything, and was completely unwilling to help. I asked for assistance from someone else and she said there was no one that could help me. I'm expecting to wait again, but I have lost all patience at this point. It will be 2 YEARS come May 2011 that we have waited for this, and I'm certain it will hit the 2 year mark. At this point, I have obtained all contact information for my local tax advocate and I'm hoping to get results soon.

I do not really understand what is happening in your country. I think, those that you describe often happens in any country, and this also happens in my country. Tax Credit is to assist in stimulating the buyer to move forward with their purchases in tough economic times but there's always be people who abuse the system.

I'm happy to say none of my clients who took advantage of the tax credit were inmates! It was a nice incentive to get some of them moving faster than they would have otherwise. None of them, as far as I can tell, is unhappy with their new home, despite the fact that they had to make a decision sooner rather than later.

Very informative blog. I agree with some of the other comments that the Tax Credit was helpful in stimulating buyers to move forward with their purchases in tough economic times however there will always be those that abuse the system. Funny how the media is not on top of this dirt!

I have been browsing around on various real estate sites/ blogs for the last couple of months and the web dominance that you have earned in your area is impressive. Not sure what your workload is like in life, but if you started committing more time to posting here, I would bet you would begin seeing a lot more visitors. With more visitors you could even start advertising which would create yet another stream of income. Good luck!

No matter what happens in this country that is put in place to benefit somebody in some way, there are always people out there that will figure out how to manipulate the system. It's a shame... There should have been more due diligence involved with this whole tax credit thing.

well if it takes 16 week's to get it those lifers sure had plenty of time to wait huh,? also if a first time buyer is in need (right away) chances are they will end up in a few years, losing the house. I have found if you dont have 5-10K in savings, bbut available if its needed, then how do you pay any where from 1400.+ a month, if one of them gets laid off ???